Accretive Health and the true cost of outsourcing

Giving up control can cost a reputation if partner doesn't adhere to the same standards

May 05, 2012|Phil Rosenthal

Accretive Health employees provide physician advisory services such as audit risk assessment, concurrent level of care classification and denial management. The dust-up between Chicago-based Accretive and a Minnesota hospital system points up an aspect of outsourcing that isn’t always given enough consideration: For all the emphasis on what a company gets by subcontracting, such as cost containment or expertise, it is also giving up control. (Antonio Perez, Chicago Tribune)

You know the Alec Baldwin "coffee is for closers" spiel added for the film version of David Mamet's "Glengarry Glen Ross"? First prize in the high-pressure sales contest, a car; second prize, a set of steak knives; and third prize: "You're fired."

That hard-sell mentality is sharply at odds with what one would expect from a nonprofit health care provider. But that's what Minnesota Attorney General Lori Swanson recently accused Accretive Health of applying to patients of hospital operator Fairview Health Services when Fairview outsourced billing work.

Chicago-based Accretive says Swanson has presented a gross misrepresentation of its tactics. But legalities aside, the dust-up points up an aspect of outsourcing that isn't always given enough consideration: For all the emphasis on what a company gets by subcontracting, such as cost containment or expertise, it is also giving up something very important.

Control.

This doesn't have to be a problem if Company A and Company B have the same standards and ethos. Where it gets tricky is when Company B doesn't operate in a way that's consistent with how Company A wants itself to be seen. That's when Apple has to police its Chinese supply chain, Nike has to investigate overseas factory conditions, and when a Minneapolis hospital system has to re-examine whether it's getting everything it wants from handing over responsibility for collections to outsiders.

In short, even though money increasingly has been a driving force behind businesses and even public entities subcontracting of late, it can't just be about the money.

"The models that have been driving business have been a financial model, optimizing the money-making machine, and it's more complicated than that," said Ron Nahser, a senior Wicklander fellow at the Institute for Business and Professional Ethics at Chicago's DePaul University. "It's more like an organism. You can't just bolt things on. You have to form partnerships with others who share the same (values) you do, because then you can offer more of a seamless experience.

"The hospital (situation in Minnesota) is a consumer experience," Nahser said. "That's what businesses sell. You have to make sure that anyone who has any part of the consumer experience shares culture, because that's what supports the brand. There is a financial piece, but it's not the whole story. The most important asset you have is your reputation, and your reputation is really your brand. You have to make sure that every decision you make is supporting your brand."

In the Accretive case, it's the culture clash with Fairview that stands out.

Fairview stopped using Accretive as a bill collector in January, is moving to sever its remaining ties and "wouldn't have made the same decision" in 2010 to outsource to Accretive if it had known what it now does, Fairview Chief Executive Mark Eustis told the St. Paul Pioneer Press.

"Some of our patients don't feel they've been treated with respect and dignity," he told the paper. "It's obvious that we placed some of our employees in uncomfortable situations."

Swanson's report said Accretive "undermined Fairview's mission-driven culture" by converting the culture "of a charitable organization to that of a collection agency" and said that more than the legal violations her office identified, "it is the 'Glengarry Glen Ross' culture that necessitates remedial action."

Mary Tolan, Accretive Health's CEO, told the Chicago Tribune last week that Swanson's report contained "a tremendous amount of innuendo and falsehoods and doesn't represent what we do at all." Tolan said debt collection represents about 5 percent of its revenue, while most of its hospital work is devoted to helping ensure patients and health care providers get what they're supposed to from government and insurance companies.

"When outsourcing decisions moved from managerial departments into financial departments," a trend that became firmly entrenched in the 1990s, "controlling costs became the principal value upheld by so many companies," said Nik Theodore, director of the Center for Urban Economic Development and an associate professor in the University of Illinois at Chicago. "When you view it as a cost to be minimized … you won't look as carefully at the wider production process in which that service or item was produced."

Some companies and government contractors have sought plausible deniability through outsourcing, hoping to benefit from the corner cutting or tactics of others without having to own up to them. Others are well-meaning and simply want to focus on their core mission but find everything is connected in the eyes of consumers, who now can unite behind a cause and share information more quickly and efficiently than ever before.